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“Russia will never catch up”

“We will never catch up,” writes Alexey Melnikov, member of the bureau of Russia’s liberal opposition party, Yabloko, in Gazeta.ru. “Twenty years of unsuccessful reforms, propaganda lies, theft, corruption, and brain drain have deprived Russia of the possibility to develop and compete with other nations. Our lot is to rot away, selling the only thing that anybody still buys from us: oil and gas,” Mr Melnikov laments.

Lengthy visits of Russian officials to the United States usually contribute to if not sensible decisions, then at least to some clarity in the minds of our rulers. The visits serve to remove any thought of Russian economic power and the workability of our crony capitalism, and help understand how backward Russia really is.

I wonder, did Russian President Dmitry Medvedev sense anything of the sort on his latest visit to the US? Be it as it may, what ever went through the president’s mind and what ever measures he intends to take, is of no consequence. Change will not happen in Russia.

Analysts sometimes argue that the Russian economy has one characteristics: low level of competition. The solution is thus thought to be simple: all the president needs to do is reduce state interference in the economy and liberalise legislation on investments, and competition will do its magic, fuelling economic growth.

It will never work. A competitive economy is impossible to create in conditions where property rights are being violated. Can one then create a durable system of private property guaranteed by the rule of law in Russia? I very much doubt it.

Private property as a deciding factor of economic development does not exist in Russia. It has been replaced by bureaucratic property managed by state officials ready to defend their own interests by any means at their disposal.

Bureaucrats fund their entrepreneurial activities using state budgets and everything that is usually considered private property. Russia is their property. This state of affairs has penetrated our entire economy. It is quite clear why some live in peace and prosperity: they are making steady payments. Anyone who refuses to pay is barred from the market.

Ownership of bureaucratic property is conditional to affiliation with the corporation. This is a precarious position to be in. That is why officials establish businesses through proxies. The money flows through a vast system of pipelines, lining the pockets of state officials. This is how one does business in Russia.

Over the course of the last 20 years of economic changes in Russia, a new class of “entrepreneurs” has emerged who are good at nothing. If one takes away their ability to suck budget funds, they are left helpless. Formally, they are private entrepreneurs, but, in fact, the only thing that they have in common with real business is that they keep books and pay taxes.

Reflecting on the question of what could serve as the engine of economic changes in Russia leads to the conclusion that the Russian economy can only become competitive as a result of a serious social upheaval, a revolution. The question is: would that be possible? Who would lead it?

Russia’s weak class of entrepreneurs? The powerless liberal political parties? Human rights defenders? The downtrodden trade unions? The free press? Please do not delude yourself. There is no such force in Russia today. The situation can only get worse.

That said, the systemic failure of Russia’s economic policies in the first decade of the 21st century is obvious. The idea of so-called “state corporations” and “strategic companies” as engines of economic development, as opposed to a system of competition, has failed. Ten years have led us nowhere from our current state of backwardness.

What is the situation in Russia’s political system, then? Perhaps the government is able to change the country’s economic structure by force? Alas, Russia’s political system fully conforms with the structure of the economy; the same bureaucratic stranglehold stemming from the economic relations and the Russian way of doing business. There is no independent politics in Russia; politics produces no changes.

The optimism of the opponents of Russia’s authoritarian system in the past few years was based on the notion that raw material prices would one day come down, and the system, unable to meet its social responsibilities, would collapse, giving way to a European-style political and economic system. Those wishes have proven futile.

No amount of reduction in the income of the bureaucratic system will lead to its transformation. The level of water in the bog may fall and a new layer of slime emerge, but the bog itself will not turn into a river.

This is the price we inevitably have to pay for our last century, for the destruction during the civil war and subsequent years of the bedrock of people and institutions that was formed with great difficulty in the centuries of Russian evolution. This is the price we have to pay for turning people into a herd of slaves to the state both in terms of social status and world view. All we have left is a desert where nothing grows but thorns.

Our country is doomed. We have lost all hope of developing and competing with other nations. The time of “catching up” and “outrunning” our rivals has passed. Our lot is to rot away, remain a commodity colony so that Gazprom and Rosneft can pump oil and gas to Europe and China. Concerts and parades will go on on Moscow’s Red Square to the very end with pomp and circumstance. There will be some economic oases awash with money.

The name of Russia’s planned “Silicon Valley”, Skolkovo, is symbolic: “skol”, meaning a chip, fragment of a real competitive economy, which Russians have no possibility to create. We will never catch up and never outrun, because we are simply running in place.